Address by Mr. Noel Treacy T.D.,Minister for Science, Technology and Commerceat the Opening of Version 1 Software Ltd., at East Essex Street, Dublin on 29th June 2000

I’m delighted to be here this evening to mark a significant stage in the growth and development of another Irish software company. Version 1 Software Ltd first opened for business in Dublin, in Lower Mount Street, in January of 1997. Today, over three years later, it’s good to be able to join over 20 employees in welcoming a group of the company’s customers, business partners and support services, from the UK and Ireland, to this formal opening at this new location.

Version 1 Software Ltd is one of a group of third-generation companies within the Irish software sector which has been steadily building its position over the past few years, during a time when the press headlines have been full of the stock market flotations and buyouts of the earlier generation of companies. As the sector continues to grow, there is every likelihood that there will be a continuous flow of new Irish companies like Version 1 which can achieve the scale and the reputation in world markets which some of those other Irish companies have already reached.

Version 1 is an example of how successfully a company can grow when it combines a clear, consistent strategy, successful industry partnerships, and world-class technical ability.

Our National and International success in the software sector has not come about by chance. Since the 1970’s, Ireland has targeted industries with a high knowledge content as the way to develop our national economy. Our educational system has been deliberately structured to support that decision. As a result, Ireland has been turning out excellent graduates, especially in computing, and this has been a major factor in our software success story. Also since the 1970’s, it has been a Government priority to have a world-class telecommunications network.

The success of our approach is clear for all to see. Software has become a major Irish success story. Seven (7) out of the Top ten (10) independent software companies in the world are located in Ireland and have contributed to the emergence of our reputation as a world centre for software development. But side by side with the large overseas companies, we have a thriving indigenous sector, and while we are all familiar with the many big international companies who have made Ireland a location of choice for doing business, it is important that we recognise the role played in this revolution by companies such as Version I Software Ltd.

Ireland has a strong, export-based software industry, with a mix of multinational and native Irish companies contributing 10% of overall exports. The Irish companies have shown particular aptitude for picking market niches, designing quality products, and marketing them profitably on the world markets.

The software industry in Ireland is growing at a rate of around 20% per annum. It is creating entrepreneurs at a rate that no other industry has managed to do - practically all companies raising significant venture capital or with listings on the stock exchanges come from this sector. It also allows Ireland to be an international player, as it doesn’t call for resources which we traditionally don’t have like oil or coal or steel, and it does not penalise physical remoteness.

With the success which we have achieved, Ireland is often referred to as ‘the Silicon Valley of Europe’. The incredible progress by the Irish software industry was further marked recently when a new report by the Organisation for Economic Co-operation and Development (OECD) established that Ireland has now overtaken the USA to become the leading exporter of software products in the entire world. Between them, Ireland and the USA now account for 65per cent of world trade in software.

The OECD report paid tribute to the development of the industry here, noting that the Irish software sector is often cited as an example of the success of national policies aimed at developing a world class high-tech industry. We will continue to pursue the policies necessary to maintain our leading position in these industries.

Irish companies are successful in overseas markets because they have developed leading edge niche applications that, in many cases, have led them to become global players in their field. In many of the new technologies, innovation rather than size is what matters and it is not just possible but commonplace for a very small company, with limited resources, to compete with the best. The business culture of Irish companies is very similar to that of the new breed of US high tech corporation where strong integrity, trust and commitment are key elements in building a successful client or partner relationships.

With our current standing at the top of the leader board of the software industry internationally, it is easy to forget that this has been achieved in a relatively short space of time. In particular, the indigenous Irish software industry has made extraordinary strides in the past five years.

Not long before Mr. Justin Keating wrote his first business plan and set about implementing it, the momentum of the sector had really only begun. The biggest company, Kindle, which was already in overseas ownership, still had fewer than 300 people and the next four companies between them employed not much more than the same number again. While there was no shortage of entrepreneurs, and Enterprise Ireland’s precursor agencies were kept busy trying to meet their needs, venture capital was next to impossible to find for technology companies at either start up or early development stages. Software, despite the successful sale of Kindle, was definitely not the flavour of the month or year in the financial community, which still hankered after traditional asset-backed investment propositions.

The major breakthrough was probably the listing on NASDAQ of CBT Systems in 1995. This was a truly pioneering move by a company which had been founded in 1984 and which had to contend in its early years with very difficult economic and investment conditions. CBT was followed in 1997 by Iona Technologies. In 1994, neither of these was even in the top 10 in the Irish sector, but today, with their well-established US presences, they feature regularly in listings of the most significant software companies operating in the US market.After the Iona flotation the momentum gathered. Companies began to find that the international reputation of Irish software products was making it easier to penetrate overseas markets, and the barriers to doing business in the US market no longer seemed so daunting. Growth accelerated. Venture capital firms sprang up one after another, and Irish technology entrepreneurs today are almost spoiled for choice when it comes to sourcing investment for promising new ventures based on intellectual capital. The major Irish investment brokers devote careful research, not just to the listed companies, but to the emerging software companies which show potential.

Venture capital has become readily available in the last couple of years and this has accelerated the growth patterns. The Millennium Entrepreneur Fund, launched in June of l998, is a £1 million Enterprise Ireland-led initiative to encourage overseas based Irish technologists to establish new enterprises back in Ireland. It is one of a number of Venture Capital Funds set up by Enterprise Ireland in partnership with the private sector under the Seed and Venture Capital Measure of the Operational Programme l994-l999. The fund provides early stage equity finance up to a maximum of IR£100,000.

The primary purpose of the fund is to provide early stage risk seed capital funding to highly skilled individuals or teams with:-

• strong international experience
• an identified technology based high growth potential business focused primarily on export markets andentrepreneurial drive and ambition

who are willing to set up a business either in a manufacturing sector or in an internationally traded service sector.

At the end of 1998, the top 5 Irish companies employed 1,800 people - an average annual growth rate for the group of almost 30%, which is being reproduced across the sector as a whole. It must be noted however that of this top group, two are publicly listed and three are in overseas ownership. This trend has continued and indeed accelerated in 1999 and into 2,000.

It must be recognised that it is going to continue to be difficult in the near term for companies to fund the development and marketing effort necessary to achieve true international scale unless they get access to the resources either of stock markets or of powerful parents. The day when a local Irish capital market will provide the resources to bring a company from startup to world scale is not yet here, and in the context of increasingly European and indeed global investment the concept of local capital sourcing may become irrelevant to a sector increasingly confident of its own capabilities and potential.

Version 1, during its formative years has benefited from the support of Enterprise Ireland - most recently, in making its initial explorations of the UK market. I’m happy to note the role of Enterprise Ireland’s precursor agencies in supporting the indigenous software sector as a whole since it first began to emerge in the early 1980’s.

The former Forbairt and the Irish Trade Board, alongwith the IDA, worked patiently and hard to support what was for a long time a weak fledgling sector, and it’s perhaps easy to forget, in these recent days of plentiful venture capital, that over that whole period something of the order of £50m was invested in the sector through the agencies’ various financial instruments.

The role of Enterprise Ireland will inevitably change over the coming years, with a much greater emphasis on non-financial supports which will be of particular value to early stage companies trying to telescope the learning period between initial foundation and achieving critical trading mass. It must be possible to build on the experience of the companies who have gone before, and EI, with its long history of sharing and observing the progress of hundreds of companies, is uniquely positioned to help achieve this.

It will be at least equally important to ensure, through coordinated action that the skills base, the human capital on which the success of this sector has been built, is not allowed to become so scarce that future growth is stunted. To some extent, the software sector over the past couple of years has been a victim of its own success by creating unprecedented numbers of new jobs. These have absorbed the output of people qualified in computer studies from the various third level institutions, and the steps taken by this Government to increase that output which will be vital to the continuing growth and success of Version 1, its peers and successors.

Today I’m very happy to officially perform this opening ceremony. I wish Justin and John and all their colleagues in Version 1 Software still more success and growth in the future.